The EU’s Carbon Border Adjustment Mechanism (CBAM) creates a fundamental distinction in how metal producers are treated based on their scrap input, particularly the threshold that determines whether the production is regarded as primary or secondary production route depending on the type of main input (interpreted as a minimum 50% scrap mass content). This seemingly simple rule carries profound implications for the competitiveness of producers and scrap aggregators, with significant changes expected from 2028 onward.
The Current 50% Scrap Threshold (2026-2027)
Under CBAM regulations, producers who have completed accredited emissions verification and use more than 50% scrap by mass receive the most favourable treatment: zero embedded emissions are attributed to the entire exported product. This is a complete exemption, creating a powerful incentive for secondary producers with EU exports to invest in verification and maintain scrap ratios above the threshold. Producers with verified emissions but less than 50% scrap must report actual Scope 1 emissions against primary benchmarks for their specific production route.
If the production is based on secondary raw material of more than 50%, the cost of not carrying out the verification is the difference between 0 and the high emission benchmark values for primary usage. Those without verification face significantly higher default emission factors for primary production, creating substantial CBAM cost disadvantages
The 2028 Differentiation: Post-Consumer vs. Pre-Consumer Scrap
From 2028 onward, the EU plans to introduce a critical distinction between post-consumer scrap (end-of-life material from products) and pre-consumer scrap (production waste, offcuts, and process scrap). The updated framework will create a new decision hierarchy:
- If your production uses more than 50% Post-Consumer Scrap (verified),zero emissions for the entire exported product. That is the same full exemption as today, but now requiring post-consumer scrap specifically.
- If your production usesmore than 50% Pre-Consumer Scrap (verified), use of the significantly lower secondary production emission benchmark rather than zero emissions. This still offers a substantial advantage over primary production benchmarks but eliminates the complete exemption.
- If your production usesless than 50% of Any Scrap Type (verified), report actual Scope 1 emissions against primary benchmarks for the production route.
- No Verification,penalised with significantly higher default factors of primary production.
Footnote: Discussions on the final 2028 regulation are ongoing, with the next update expected in September 2026. Producers should monitor regulatory developments closely and prepare for stricter scrap classification requirements.
What are the Implications for Producers and Scrap Aggregators?
The 2028 intended refinement addresses a fundamental carbon accounting consideration: pre-consumer scrap has never left the production cycle. Post-consumer scrap, by contrast, represents genuine circular economy activity, diverting material from landfill and avoiding primary extraction.
Strategic implications:
- Scrap generally will be more sought after by producers to reach the 50% scrap mass content.
- From 2028, post-consumer scrap will be more sought after and will likely command a new premiumas producers compete to maintain zero-emission status.
- Producers and scrap aggregators must implement scrap tracking and classification systems to distinguish post-consumer from pre-consumer material.
- A likely premium on post-consumer scrap will accelerate investment in collection, sorting, and processing infrastructure, particularly in regions with EU export exposure. This can include segregation ofpost-consumer and pre-consumer streams at the point of collection or investing in more efficient post-consumer sorting technology.
- Pure secondary smelters using scrap and even more post-consumer scrap will gain further advantage. On the other hand, integrated producers using process scrap will lose their current exemption and must compete on actual carbon intensity.
Additional Implications for Scrap Yards and Aggregators
- Scrap yards that can reliably source, verify, and document post-consumer material will command market power and pricing premiums.
- The administrative burden of classification, documentation, and verification may be prohibitive for smaller scrap operators.
- Scrap yards in regions with strong municipal recycling systems and automotive dismantling networks will have preferential access to verified post-consumer streams.
- Forward-thinking scrap aggregators may offer “CBAM-ready” certified post-consumer scrap as a premium product line, complete with full documentation and verification support for producer customers.
Strategic Takeaways
The CBAM scrap treatment framework represents a fundamental restructuring of competitive dynamics in scrap markets with EU exposure. Producers who can secure verified post-consumer scrap streams and implement robust traceability systems will gain significant structural cost advantages.
The winners in this new landscape will be secondary producers with post-consumer scrap access, and scrap yards offering CBAM-certified material with full chain-of-custody documentation and verification.
